This month will be the first of a two part examination of international economic institutions and their critics. We will be discussing the International Monetary Fund (IMF), what it is, and some of the more common criticisms of its activities. For as powerful and wide-reaching as this organization is, their business is not commonly known.
Headquartered in Washington, D.C., the IMF serves to stabilize exchange rates and aid development in a variety of countries. It also offers loans to various countries, often the poor, “developing” nations. Originally founded in July 1944, its goal was the rebuilding of international financial systems which were destroyed by World War II. Today, almost all of the world’s countries are members, with a few notable exceptions such as Cuba and North Korea. The connection between IMF membership and alliance with the United States is no coincidence; Hugo Chavez, the left-wing president of Venezuela, has called the IMF and the World Bank “the tools of the empire” that “serve the interests of the North”. As we shall see, he is not alone in his criticism that America and Western Europe profit from the rest of the world’s misfortune.
Sometimes the IMF can take a problem and intensify it. The loans they offer come with serious strings attached, as was noticed with the Asian Crisis of 1997. They pushed for spending cuts, tax raises and higher interest rates, resulting in a major economic recession with skyrocketing unemployment rates. One of the biggest critics was Joseph Stiglitz, the World Bank’s chief economist. The high interest rates were supposed to restore investor confidence, under the belief that the offer of big returns would attract investors who had been scared off. “You’re protecting firms that have gambled”, said Stiglitz, but “Who is paying the price? … Workers who are going to be put out of jobs.” This criticism was particularly interesting and rare, as the IMF and World Bank generally work together. Michael Mussa, the IMF’s head, retorted “Those who argue that monetary policy should have been eased rather than tightened in those economies are smoking something that is not entirely legal.” Stiglitz maintained that the threat of global recession was real if Japan’s economy could not be corrected. Exactly how accurate he was is open to debate, as we know the recession did not hit until much later and for different reasons.
The “strings attached” are known as Conditionalities and Structural Adjustment Programs (SAPs). The most common SAP condition pushes governments to sell off their national assets in order to decrease the deficit. This is a short-term fix to a long-term problem, as the assets are sold at less than their value to Western corporations who are then free to charge what they wish for them, often higher than what the government had been charging. A growing problem is the sale or privatization of water. Making water and other necessities a for-profit business only leads in one direction: an increase in poverty and a decrease in availability. If the goal is to correct a country’s economy, the proper solution is not to starve all the citizens.
And when we say “starve”, that is meant quite literally, because even food and agriculture are affected by the IMF. While coming to his senses a decade too late, President Clinton called out the Fund on October 16, 2008: “We need the World Bank, the IMF, all the big foundations, and all the governments to admit that, for 30 years, we all blew it, including me when I was President. We were wrong to believe that food was like some other product in international trade, and we all have to go back to a more responsible and sustainable form of agriculture.”
Under the guise of terms like “fiscal responsibility”, the IMF has pushed for spending cuts. On the surface this makes sense, but inevitably leads to reduced public services. In 2008, Cambridge and Yale universities published a study that concluded the IMF’s tough measures resulted in thousands of deaths in Eastern Europe from tuberculosis due to scaled-back public health care. Using twenty-one countries with loans as a sample, the study found the death rate rose 16.6%.
There is an argument that the IMF overpowers a country’s sovereignty or autonomy. Jamaica, for example, had argued that they were unable to craft policies due to the conflict with the Fund’s restrictions. They had further argued that this was undemocratic because the IMF members were not elected, and the point of view offered by the Fund was pro-free market, pro-West, and pro-developed world, which did not fit into the Jamaican way of life.
The criticism from Chavez may have stemmed from the IMF’s handling of nearby Argentina, which had been called “a model country” by the Fund, due to its strict adherence to the restrictions placed on their policies. This was then followed by an economic collapse in 2001, causing many to believe the “model” was faulty and that the Fund had sent Argentina into a tailspin of failure. The reaction in South America was strong, igniting resentment for Western policy and the rapid election of left-leaning politicians in the region. Besides Venezuela, other nations going left include Brazil, Uruguay, Bolivia, Ecuador and Nicaragua.
While many critics feel the IMF do not help enough, others think they help too much. The existence of IMF loans, it has been said, may encourage a nation to be less careful with their economic decisions, as they know they can rely on the Fund to bail them out if things go awry. This would not push for a nation’s personal responsibility. How realistic this concern is could be argued either way.
What is probably the most fascinating complaint is the claim that the IMF has a tendency to support right-wing dictatorships. If true, this would be saying the United States financially propped up violent and murderous regimes throughout the world. Long-time foreign policy critics would not find that accusation shocking, but may not have realized some of the indirect routes used to aid those tyrannies. Particularly during the Cold War, the Fund was on the side of American and European business. As such, they decided that a good fiscal policy would be to promote the economic models that were pro-West, even if the countries had otherwise awful records with human rights, democracy or labor.
One prime example was Field Marshal Humberto de Alencar Castelo Branco, a military dictator in Brazil during the 1960s. He received tens of millions of dollars in loans after his predecessors, democratically-elected officials, had been denied similar loans. Castelo Branco had begun receiving these loans from almost his first day in office, along with business offers from American businesses. He used his power to shut down the left-wing political parties of Brazil, dismantle all the other contemporary political parties, and created a law that made press coverage very restrictive. That law remained in effect until 2009, essentially destroying Brazilian democracy even after power returned to elected officials.
The critiques go on and on, from the claim that over one hundred countries since 1980 have had economic collapse to the fact that Kenya in the 1980s lost billions to corruption. There have been attempts at defending the Fund, but their record speaks volumes, and it is no surprise that the anti-globalization movement is expanding.
Next month, we will cover the other major international economic institution, the World Bank.
Gavin Schmitt (email@example.com) is still willing to respond to any concerns in future articles, so be sure to let him know if you disagree.